nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2013‒06‒30
ten papers chosen by
Erik Thomson
University of Manitoba

  1. Siting the New Economic Science: The Cowles Commission's Activity Analysis Conference of June 1949 By Till Dueppe; E. Roy Weintraub
  2. Quesnay and the analysis of the surplus in an agrarian capitalist economy By Serrano, Franklin; Mazat, Numa
  3. Solow’s Harrod: Transforming Cyclical Dynamics into a Model of Long-run Growth By Verena Halsmayer; Kevin D. Hoover
  4. Convergence of best response dynamics in extensive-form games By Xu, Zibo
  5. Inclusive Fitness Maximization : An Axiomatic Approach By Samir Okasha; John A. Weymark; Walter Bossert
  6. The Role of Incentives in Co-operation Failures By David Bartolini
  7. Fair Wages Survive Multiple Sources of Income Inequality By Karina Gose
  8. Democracy, Dictatorship and the Cultural Transmission of Political Values By Ticchi, Davide; Verdier, Thierry; Vindigni, Andrea
  9. La subordination financière. By Bali, Mehdi
  10. A positional game for an overlapping generation economy By Ahmad Naimzada; Marina Pireddu

  1. By: Till Dueppe; E. Roy Weintraub
    Abstract: In the decades following WWII, the Cowles Commission for Research in Economics came to represent new technical standards that informed most advances in economic theory. The public emergence of this community was manifest at a conference held in June 1949 titled Activity Analysis of Production and Allocation. Our history of this event situates the Cowles Commission among the institutions of post-war science in-between National Laboratories and the supreme discipline of Cold War academia, mathematics. Although the conference created the conditions under which economics, as a discipline, would transform itself, the participants themselves had little concern for the intellectual battles that had defined prewar university economics departments. The conference bore witness to a new intellectual culture in economic science based on shared scientific norms and techniques un-interrogated by conflicting notions of the meaning of either science or economics.
    Keywords: Cowles Commission, activity analysis, linear programming, general equilibrium theory, von Neumann, Koopmans, Dantzig, fixed point theorems
    JEL: B2 C0
    Date: 2013
  2. By: Serrano, Franklin; Mazat, Numa
    Abstract: In order to discuss the ‘rational foundation’ of certain aspects of Quesnay´s theory we use a simple formalization of the necessary connections between assumptions about the techniques in use, the distribution of income between the classes and sectors, the system of relative prices. We argue that Quesnay´s system was a truly capitalist agrarian economy and that he was indeed a pioneer of the classical political economy/surplus approach to economics as identified first by Marx, Sraffa and Garegnani, the physical surplus of grains being the necessary basis for his analysis of the distribution and relative prices.
    Keywords: Physiocracy, Capitalist Agrarian Economy, Surplus Approach, Classical Political Economy
    JEL: B11 B12
    Date: 2013–06–20
  3. By: Verena Halsmayer; Kevin D. Hoover
    Abstract: Modern growth theory derives mostly from Robert Solow’s “A Contribution to the Theory of Economic Growth” (1956). Solow’s own interpretation locates the origins of his “Contribution” in his view that the growth model of Roy Harrod implied a tendency toward progressive collapse of the economy. He formulates his view in terms of Harrod’s invoking a fixed-coefficients production function. We challenge Solow’s reading of Harrod’s “Essay in Dynamic Theory,” arguing that Harrod’s object in providing a “dynamic” theory had little to do with the problem of long-run growth as Solow understood it, but instead addressed medium-run fluctuations, the “inherent instability” of economies. It was an attempt to isolate conditions under which the economy might tend to run below potential. In making this argument, Harrod does not appeal to a fixed-coefficients production function – or to any production function at all, as that term is understood by Solow. Solow interpreted Harrod’s “Essay” in the light of a particular culture of understanding grounded in the practice of formal modeling that emerged in economics in the post-World War II period. The fate of Harrod’s analysis is a case study in the difficulties in communicating across distinct interpretive communities and of the potential for losing content and insights in the process. From Harrod’s English Keynesian point of view, Solow’s interpretation arose out of a culture of misunderstanding, and his objects – particularly, of trying to account for a tendency of the economy toward chronic recessions – were lost to the mainstream literature.
    Keywords: economic growth, Roy Harrod, Robert Solow, dynamics, dynamic instability, knifeedge, warranted rate of growth, natural rate of growth
    JEL: B22 O4 E12 E13 N1 B31
    Date: 2013
  4. By: Xu, Zibo (Dept. of Economic Statistics, Stockholm School of Economics)
    Abstract: We prove that, in all finite generic extensive-form games of perfect information, a continuous-time best response dynamic always converges to a Nash equilibrium component. We show the robustness of convergence by an approximate best response dynamic: whatever the initial state and an allowed approximate best response dynamic, the state is close to the set of Nash equilibria most of the time. In a perfect-information game where each player can only move at one node, we prove that all interior approximate best response dynamics converge to the backward induction equilibrium, which is hence the socially stable strategy in the game.
    Keywords: Convergence to Nash equilibrium; games in extensive form; games of perfect information; Nash equilibrium components; best response dynamics; fictitious play; socially stable strategy.
    JEL: C73 D83
    Date: 2013–06–24
  5. By: Samir Okasha; John A. Weymark; Walter Bossert
    Abstract: Kin selection theorists argue that evolution in social contexts will lead organisms to behave as if maximizing their inclusive, as opposed to personal, fitness. The inclusive fitness concept allows biologists to treat organisms as akin to rational agents seeking to maximize a utility function. Here we develop this idea and place it on a firm footing by employing a standard decision-theoretic methodology. We show how the principle of inclusive fitness maximization and a related principle of quasi-inclusive fitness maximization can be derived from axioms on an individual’s ‘as if preferences’ (binary choices). Our results help integrate evolutionary theory and rational choice theory, help draw out the behavioural implications of inclusive fitness maximization, and point to a possible way in which evolution could lead organisms to implement it.
    Keywords: Hamilton’s Rule, inclusive fitness, kin selection, rational choice
    Date: 2013
  6. By: David Bartolini
    Abstract: There are many situations where the best outcome is reached through co-operation and co-ordination of agents’ actions. Although this is the best collective outcome, economic agents may fail to implement such co-operative strategy. The reason for this failure may be lack of information about the gains from co-operation, or lack of capacity to implement the co-operative strategy. The present work focuses on two obstacles to co-operation that are linked with the incentives of the economic agents, and that are present even when the problems of information and capacity are taken care off. The two obstacles are the incentive to free ride and the strategic risk. The former stems from the possibility of obtaining gains without paying the associated costs (which are incurred by the agents that decide to co-operate); the latter is the risk of being the only one (or among the few) that acts co-operatively, so that the agent pays the costs but obtains less than what it would be feasible had other agents decided to co-operate. In this setting, using a game theoretical approach, we distinguish several cases of co-operation failures according to the relevance of those two obstacles. The analysis is then applied to contractual design and financial incentives. The overall message is the importance of identifying the source of co-operation failure in order to devise an effective policy to induce co-operation. It may not be enough to tell people (and institutions) that they should co-operate because it is in their interest, it is necessary to identify the incentives that shape agents’ decisions and are responsible for co-operation failures.
    Keywords: game theory, co-operation and co-ordination failure, economic incentives
    JEL: C70 C72 D86
    Date: 2013–05–27
  7. By: Karina Gose (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: When an employee in a gift exchange game earns significantly less than the employer, the source of employer income does not affect effort choices. However, to induce one unit of effort, the employer has to pay higher wages than in a game without payoff inequality.
    Keywords: Gift exchange, fair wage-effort hypothesis, reciprocity, inequity aversion, tit for tat
    JEL: C91 D31 M52
    Date: 2013–06
  8. By: Ticchi, Davide (IMT Lucca); Verdier, Thierry (Paris School of Economics); Vindigni, Andrea (IMT Lucca)
    Abstract: We develop a theory of endogenous regimes transitions (with a focus on democratic consolidation), which emphasizes the role of political culture and of its interaction with political institutions. Political culture reflects the extent of individual commitment across citizens to defend democracy against a potential military coup, and it is an endogenous state variable of the model along with formal political institutions. We focus on two agencies of political socialization: the family and the state. Parents invest resources in order to transmit their own political values (commitment to democracy) to their children. The state invests resources in public indoctrination infrastructures. The model displays two-way complementarities between political regimes and political culture diffusion. Consolidated democracy emerges when sufficiently many people are committed to democracy. Otherwise the model features persistent fluctuations in and out of democracy as well as cycles of political culture. Importantly, the politico-economic equilibrium may exhibit a persistent (although declining) incongruence between political institutions and political culture, which tends to evolve more slowly than formal institutions.
    Keywords: political culture, socialization, democracy, military, nondemocracy, political economy, political transitions, institutional consolidation, path dependency
    JEL: P16 H11 H26 H41
    Date: 2013–06
  9. By: Bali, Mehdi
    Abstract: La subordination financière est l’établissement d’une hiérarchie entre créanciers. Avant une procédure de répartition, cet ordre entre créances est mis en place à l’aide d’échéances différentes et de stipulations particulières (blocage des paiements). Après les répartitions, ce classement peut être créé soit par la suppression de l’égalité entre créanciers. Celle-ci est tantôt légale (droit de préférence), tantôt volontaire (déclassement) et s’assimile dans ce cas à une renonciation. Au terme de cette hiérarchie, certains créanciers seront payés en dernier, les créanciers résiduels. Le financement des sociétés est décrit par la distinction entre les associés et les créanciers. Devant la faiblesse de cette division, la doctrine a proposé les fonds propres. Ce concept est redéfini en mettant l’accent sur la subordination, qui fait clairement apparaître la qualité de créancier résiduel de l’associé. Il conduit à une nouvelle lecture du financement de la société, qui est transdisciplinaire
    Abstract: Financial subordination establishes a hierarchy between creditors. This degree is implemented through the legal or intentional suppression of creditors’ right to equal distributions in the bankruptcy proceedings. When it is a priority claim, this loss is imposed on creditors by law. When it is a subordinated claim, creditors accept to waive their right to equal distributions. In both cases, some creditors will be paid only after the full payment of others. Those are called residual creditors.Corporation financing is based upon a division between owner and lender. Traditionally, the former puts money into the business through legal capital while the latter grants loans. As this view no longer depicts the reality of corporation financing, the French jurisprudence tried to replace it with the concept of equity, which is broader than the legal capital. In this work, equity is redefined in setting in its core financial subordination, which clearly shows why a shareholder is a residual claimant. This new definition of equity, which is shared by other disciplines outside law gives a different approach to the financing of companies under French law
    Keywords: Fonds propres; Capitaux propres; Droit des sûretés; Préférence; Déclassement; Égalité; Associé; Créancier; Société; Patrimoine; Hiérarchie; Renonciation; Titre subordonné; Convention de subordination; Equity; Secured transactions law; Priority; Subordination; Equal distribution rule; Owner; Shareholder; Creditor; Corporation; Hierarchy; Subordinated note; Subordination agreement; French law;
    JEL: K22
    Date: 2012–11
  10. By: Ahmad Naimzada; Marina Pireddu
    Abstract: We develop a model with intra-generational consumption externalities, based on the overlapping generation version of Diamond (1965) model. More specifically, we consider a two-period lived overlapping generation economy, assuming that the utility of each consumer depends also on the average level of consumption by other consumers in the same generation. In this way we obtain a positional game embedded in an overlapping generation economy. We characterize the consumption and saving choices for the two periods in the Nash equilibrium path and we determine a dynamic equation for capital accumulation coherent with the agents' choices in the Nash equilibrium. Hence, also the behavior, both static and dynamic, described by the equation for the capital accumulation is coherent with the Nash equilibrium. For the associated dynamical system we find a unique positive steady state for capital, which is globally stable. Its position is decreasing with respect to positive variations in the degree of interaction in the first period, while the opposite relation holds in the second period. We then compare the steady states for capital with and without social interaction. In this respect we show that the steady state with social interaction is larger than the steady state in the absence of social interaction if and only if the degree of interaction in the second period exceeds the degree of interaction in the first period. In particular, if the degrees of interaction in the two periods coincide, the dynamical system is equivalent to the one without social interaction.
    Keywords: Positional game, overlapping generations, consumption externalities
    JEL: C72 D91 E21 O41
    Date: 2013–06

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